GLOBAL PARTNERS LP DEFA14A 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Third Quarter 2009 Financial Results Conference Call Script
Thursday, November 5, 2009 – 10:00 a.m. ET
Good morning, everyone. Thank you for joining us. Before we begin, let me remind everyone that during today’s call, we will make forward-looking statements within the meaning of federal securities laws. These statements may include, but are not limited to, projections, beliefs, goals and estimates concerning the future financial and operational performance of Global Partners. The actual financial and operational performance of Global Partners may differ materially from those expressed or implied in any such forward-looking statement. In addition, such performance is subject to risk factors, including, but not limited to those described in Global Partners’ filings with the Securities and Exchange Commission.
Global Partners undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements that may be made during today’s conference call. With Regulation FD in effect, it is our policy that any material comments concerning future results of operations will be communicated through press releases, publicly announced conference calls, or other means that will constitute public disclosure for purposes of Regulation FD. Now, let me turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you, Edward. Good morning everyone, and thank you for joining us. I’ll begin today’s call with my perspective on our Q3 results and our outlook for the balance of 2009. Tom will then comment on our financial results in a bit more detail, after which we’ll be happy to take your questions.
We delivered a solid financial performance in the third quarter, posting year-over-year gains in gross profit, net income and distributable cash flow. Although product volume was off slightly, margins increased due to good margin management and the benefits of our product diversity.
For the quarter, gross profit increased approximately $3.3 million to $29.3 million. Net income more than doubled to $2.1 million, EBITDA was roughly flat at $10 million, and distributable cash flow increased 20% to $5 million.
2009 product volumes were flat on a year-to-date comparison through September, and were down 7% in Q3 of ’09 versus Q3 of ’08. The reduction in volumes occurred largely in our wholesale business, reflecting both further energy conservation and overall competitiveness in the refined petroleum products industry. While our wholesale product volume finished lower in the third quarter, our commercial business was a bright spot. Commercial volume, which includes our emerging natural gas business, bunkering and sales to towns, municipalities and businesses, increased 22% in the third quarter over the same period a year earlier.
Gross profit was 13% higher in the third quarter of this year than Q3 of 2008. On prior conference calls, we have talked about our emphasis on margin management. Our margin improvement initiatives include steps such as increasing the frequency of intraday price changes at our rack locations, controlling customer purchases at inland storage terminals during abrupt changes in price, capitalizing on advantageous purchasing opportunities and being selective about the overall price points of our products.
We continue to actively pursue acquisitions and organic projects. As we announced last month, the Federal Trade Commission has initiated a review of our planned purchase of three refined petroleum terminals from Warex Terminals Corp. We are continuing to cooperate with the Commission during this process. As a result of the FTC review, the transaction will not be completed in 2009. We plan to make no additional comments about the acquisition until the FTC has completed its review of the transaction, which remains subject to the FTC review and various other customary closing conditions.
In terms of organic projects, we recently launched an offshore bunkering operation off the East Coast of the United States. We have a 3,000 metric ton barge that provides 24-hour refueling services to the cargo and container vessels that travel through and around the Port of Boston. This anchorage represents another customer touch-point for Global that enables us to expand the value-added services we provide to customers and further distinguish the Global brand. I should point out that in addition to Boston we operate bunkering facilities in Portland, ME, Providence, Philadelphia and Baltimore.
Recently Global was awarded certification as a BQ-9000 marketer from the National Biodiesel Board. Much like ISO-9000 for manufacturers, BQ-9000 certification followed an independent audit of our biodiesel handling procedures. We are one of only one of 18 marketers nationwide, and three in the Northeast, to receive this designation, which ensures that our quality control standards have passed the National Biodiesel Accreditation Program’s rigorous review and inspections process.
Let me close by saying that our solid financial performance thus far in 2009 positions us for an excellent year. We are entering one of our stronger quarters in great financial and operational shape. Now let me turn the call over to Tom for his financial review.
Thank you, Eric.
As you have heard, gross profit momentum led solid third quarter results. Eric took you through most of the quarter’s financial highlights, so let me give you a sense of where we are from an earnings perspective year to date:
What I'd like to address next is the proposed amendments to the partnership agreement that we announced last week. Changes to the partnership agreement are always complex, and it is worth taking some time to make sure that everyone understands what is being proposed. I would remind you that our management team, along with our independent directors, believe the changes are in the best interests of our common unit holders.
The first change we are proposing is to substitute the metric of distributable cash flow for the metrics of operating surplus and adjusted operating surplus. These existing metrics are used both to measure the ability to pay distributions from earnings and to test whether or not the subordinated units can convert into common units. As many of you who follow MLPs are well aware, distributable cash flow is the metric most commonly used by MLPs to measure their ability to pay distributions. In essence, it's a measure of free cash flow generated during a specific period.
The old metrics are not as good a measure, we believe, in that they are influenced, among other things, by changes in inventory levels and their associated commodity prices. Consequently, adjusted operating surplus, for example, tends to overstate our ability to pay distributions during falling commodity prices and understate our ability to pay distributions during rising commodity prices.
We believe that substituting distributable cash flow for the existing metrics is a change that is consistent with the original concepts of the partnership agreement and will be a better measure of the partnership's ability to pay distributions from earnings, and to test whether or not subordinated units can convert into common units.
Incorporated under the existing definition of operating surplus was a concept regarding working capital borrowings. The concept was that distributions should not be funded through borrowings. In order to assure that working capital borrowings were not used to fund distributions, there was a requirement that working capital borrowings be substantially repaid at least once a year.
Using the new metric of distributable cash flow, such a concept is no longer necessary as distributable cash flow is not impacted by borrowings – only by what is earned during the period. As a result, this change in definitions will permit the partnership to remove the requirement from our bank facility to repay working capital borrowings at least once during each calendar year. We believe this is a significant improvement for unitholders, as the previous requirement could, potentially, force the partnership to liquidate inventories at inopportune times or to seek other more expensive forms of financing to repay working capital borrowings.
While we believe that these two changes are positive and in the best interests of common unitholders, we are proposing two additional changes that are also in the best interests of the Common Unitholders. First, we propose to remove the possibility of early conversion of the Subordinated Units. Without the proposed amendments, it is possible that 25% of the Subordinated Units will convert as early as December 31, 2009. After the proposed change, the earliest that the Subordinated Units could convert is December 31, 2010.
Secondly, we propose to raise the minimum quarterly distribution or MQD from $0.4125 cents per quarter to $0.4625 cents per quarter. I'll remind you that our current distribution is $0.4875 cents per quarter – so the higher MQD will not have any impact on current distributions. It would, however, provide some additional downside protection in the unlikely event that the distribution was reduced to the MQD, and also makes conversion of the subordinated units subject to a higher test.
We realize that we can't answer everything in a forum like this. We encourage you to read our definitive proxy. In addition, please feel free to call us.
Now let me open the call to questions. Operator?
Thank you all for your time. We look forward to keeping you updated on our progress. That concludes today’s call.